*

Copper is exempt due to its importance to U.S.

manufacturing

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Aluminium tariffs are supported by Century Aluminum ( CENX )

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Energy costs hinder expansion of US aluminium smelting

capacity

By Pratima Desai

LONDON, Aug 5 (Reuters) - A U.S. decision last week to

exempt refined copper metal from import duties is in contrast to

an earlier move to levy steep duties on aluminium, and

highlights the central importance of electricity costs and the

lobbying dynamics shaping U.S. policy.

The United States stunned the copper market with its

decision to only tax imports of semi-finished products such as

wire, tube and sheet. Copper prices on Comex are down

more than 20% since the announcement on Wednesday.

Since June, aluminium metal shipped to the U.S., where

smelters face higher electricity bills than copper producers,

has attracted 50% tariffs.

Taxes on metal production are part of a broader U.S. effort

to revive domestic smelting capacity and cut reliance on

imports.

U.S. aluminium producer Century Aluminum ( CENX ) has been

vocal in its support of tariffs that it says are essential to

protect what remains of the U.S. aluminium smelting industry.

"Century Aluminum Company ( CENX ) applauds President Trump's

unwavering defence of the nation's domestic production of

critical metals by increasing aluminum tariffs to 50%," the

company said in a June release.

The waiver for refined copper reflects its importance to

U.S. manufacturing and the influence of the industry, including

major producer Freeport-McMoRan ( FCX ), which earlier this year

said a global trade war would undermine U.S. copper production.

"A global trade war could result in slower economic growth,"

Freeport said in a submission to a U.S. government request for

comment on its investigation into copper import tariffs.

"Slower growth in the U.S. or globally would negatively

impact copper prices, which could threaten the viability of the

domestic copper industry due to its elevated cost structure."

The case for tariffs on U.S. aluminium imports includes the

energy proportion of smelting costs in the United States.

Macquarie's ballpark estimate for energy costs for producing

primary aluminium and copper is 50% and 30% respectively.

"There is no economic case for building any greenfield

aluminium smelting capacity without substantial intervention.

Even then, intervention may not be sufficient," said Macquarie

analyst Marcus Garvey.

Analysts say one major difficulty for potential investors in

U.S. aluminium smelting capacity is getting long-term power

purchase agreements at competitive prices, when power costs are

higher in the U.S. compared with other producing countries such

as United Arab Emirates, Bahrain and the world's biggest

producer China.

The cost of electricity is the main reason why there are

only four active U.S. aluminium smelters down from 23 in 1995.

According to U.S. Geological Survey, the United States

produced 3.35 million metric tons of primary aluminium in 1995,

1.6 million tons in 2015 and 670,000 tons last year.